And, unlike many of the GOP proposals offered up, thus far, Kling’s solution doesn’t merely tinker around the edges of the current system – this is fundamental reform.

Kling laid out the basics of his plan in a recent article published at the website "Cato Unbound."

For Kling, the main problem is that we don’t currently have insurance in this country when it comes to health care, but rather what he calls “insulation.”Since consumers don’t directly pay for care at the point of service, Kling argues, they’re insulated from costs and, subsequently, making smart market decisions about what care is needed and what is not.

Kling says that this inability to distinguish between necessary and unnecessary care results in the consumption of what he calls “premium medicine.”He writes: “The only reliable way to slow the growth of health care spending is to slow the rate of increase in consumption of premium medicine.”

Kling – who, like most academics, loves to coin terms – says the solution to the dual problem of insulation and premium medicine consumption is to move toward what he calls “real insurance.”Real insurance, in Kling’s view, is essentially a high deductible health plan (HDHP), but one that reimburses consumers every five years based on cumulative health care expenses in that time.

Kling gives the following example to demonstrate how the plan might work:

For example, if I buy a policy in January of 2007 and my expenses from 2007 to 2011 total $35,000, I would be reimbursed for $5000. The policy that I buy in January of 2008 would reimburse me based on expenses that I incur from 2008 to 2012, so that if my expenses for that period were $33,000, then I would be reimbursed for $3000.

Kling doesn’t get into where the $30,000 figure comes from, perhaps that’s in his book, nor does he say whether this is for single coverage or for an entire family.These are, of course, important details that would need to be spelled out before comparing the plan – or something like it – to the universal plans out there that provide the more traditional comprehensive coverage on an annual basis.

Another important detail that needs to be worked out is what to do about the poor and the chronically ill.For these populations, Kling proposes government subsidies to pay for the care of those who can’t afford it themselves and to fund catastrophic care accounts for those whose medical bills pass a certain threshold each year (he posits the figure of $50,000).

But, aside from the shockingly high price ceiling (could you imagine paying $50K, or even close to it, each year in order to survive?), a potential problem with Kling’s proposal for the chronically ill relates to his plan as a whole.

To explain, Kling’s main idea is that many people will opt out of health insurance altogether under his system because they figure, if they’re paying the first $30,000 of their care over a five year period with insurance, anyway, why not just roll the dice that expenses won’t actually be that high and thereby avoid paying the small monthly premiums that would need to fund the policy?

This, in Kling’s eyes, is a good thing because those people won’t be stuck paying health insurance when they really don’t want it or need it.And, insomuch as those people are concerned, it is a good thing.

But the trouble is that those who are left in the system, the unhealthy and less healthy, pay the price when the healthy leave.That is, by centralizing the risk on the unhealthy and less healthy, insurance companies would need to set high policy costs in order to turn a profit – in fact, it may be pointless to even have the coverage at all considering the premium cost for participants, in addition to the high deductibles they'd be paying under Kling's formula.

(Side-Note: Encouraging the healthy to leave the insurance pool is essentially the same complaint I have with Bush's standard deduction proposal.)

The idea behind keeping the healthy and the sick in the same insurance pool is that it distributes the risk and, subsequently, lowers the policy cost.But without mandating coverage, something no self-respecting free marketer would support, there is no way to ensure that this distribution takes place in Kling's model.

Some may argue that it isn’t fair that the healthy should need to get insurance to help the unhealthy pay their bills.But, the fact is, everyone is still paying those a large portion of those bills under Kling’s arrangement through the publicly funded catastrophic care accounts.

And I imagine no one is about to suggest the chronically ill foot the entire bill on their own, without government help, considering that any one of us (or our dependents) could very quickly go from healthy to chronically ill through absolutely no fault of our (or their) own.

Of course, if it turns out centralizing all of the seriously ill into a publicly-funded catostrophic care pool is notably cheaper than distributing the risk in a larger pool that includes the healthy, then maybe Kling's on to something. Until we get some numbers to show it, including a reasonable ceiling for when the catastropic care would kick in ($50K per year sounds pretty high), color me skeptical.

But beyond all that, I have other concerns with Kling’s plan regarding the ability of consumers to make wise decisions with their health care choices.Kling tries to downplay these concerns by claiming consumers could make good choices if they were simply given good information.

The trouble with this claim is that – in addition to the studies that question the correlation between quality care ratings and actual quality care – it assumes consumers have the ability to make good choices even with good information.While that may be true with preventative care, the same isn’t necessarily true for emergency treatments or other care that requires quick attention.

Plus, preventative care has the added bonus of being able to be delivered through small clinics that are often located relatively close to each other geographically.The same isn’t true for hospitals, which demand a high amount of capital to put up and keep up.In MilwaukeeCounty, for instance, there are only four main systems for adult hospital care (Aurora, Wheaton Franciscan, Froedtert, and Columbia St. Mary’s) and just one for pediatric hospital care (Children’s Hospital).

In short, the consumers in MilwaukeeCounty, like most places, don’t have all that much choice when it comes to hospital care (and rural areas have even less choice).

Other issues also arise from making consumers fully responsible financially for the care they receive, such as the extreme difficulty in accurately projecting in advance what a procedure is going to cost and the fact that consumers may be convinced to avoid preventative care if they are forced to pay for it all out of pocket – “I feel fine, why should I pay to go to the doctor?” – which eventually puts more weight on the health care system as a whole as small ailments turn into large ones after going untreated in the early stages.

Nevertheless, in spite of my mounting objections to Kling’s plan, at least he’s put one out there that does more than just tinker with our existing health care system.It would be nice to see a Republican, perhaps one from our state Assembly or Senate, put Kling’s plan – or something like it – into an actual bill specifically designed for Wisconsin so that it could be compared to the other universal coverage plans already before the state legislature.

The more plans for fundamental reform the merrier.And it also helps to get everyone talking about what should be done, rather than just what shouldn’t be done.

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Side-Note: In addition to Kling's essay, Cato Unbound also published reaction pieces by Matthew Holt, Jonathan Cohn, and Clark Havighurst, along with a virtual conversation between all four. Holt and Cohn are on the opposite side of the fence as Kling, while Havighurst is on the same side. It's all well worth the read.

3 Comments:

If the catastrophic entry point would be $50,000, the first $50,000 would be a rather affordable, insurable event. Most policies have gone to a $5mil lifetime max. By hitting $50,000+ risks, you would remove about 2% of the tail and probably over 50% of the cost of medical care from the private sector.

Kling isn't proposing insurance for up until the $50K point, he's proposing that patients pay that out of pocket; in other words, the annual insurance wouldn't actually start until that point (although you'd be reimbursed for the amount paid beyond $30K after 5 years).